Trump TACOs once more – will it work again?

​​​Truth Social post upends markets

​We all knew it was coming. Trump’s post about negotiations with Iran had been expected since the war began the end of February.

​Surging oil prices, higher gasoline prices, falling stocks and soaring bond yields are a nightmare for a US president that campaigned on bringing down inflation and inaugurating a new era of American prosperity. Thus it was perhaps no surprise that at some point Mr Trump would look to try and contain the damage to the US economy from his war, rowing back on a threat to strike Iran’s power plants that promised to unleash further retaliation from Iran and impose huge damage on America’s Gulf allies. 

​Stocks rallied hard on the news of the post, while oil prices dropped rapidly. This looked like a repeat of the 9 April 2025 pausing of tariffs, which brought an end to the Liberation Day volatility and sent stocks rallying right into the end of the year. 

​Once more, Trump had ‘chickened out’, as the phrase goes (or, ‘TACO’). There would be no strikes on Iranian power plants for another five days, buying time for negotiations. 

​Was that it?

​Trump has a history of making big changes and then rowing back from the consequences. The Iran war falls into that mould. Having shown the world the power of the US military and degraded Iran’s capabilities, Trump may now look to end the war, reopen the Straits of Hormuz and try to strike a deal with Iran.

​This worked last year with tariffs. Most countries rushed to make deals, while China was able to stand up to the US and get its tariffs reduced by using its economic muscle. The impact seemed short-lived; prices did go up but inflation was contained, and stock markets ‘looked past’ the tariffs and rebounded for the next eight months, taking US and global indices to new record highs. 

​But things might be different this time. Even if a deal with Iran is reached soon, there are hundreds of ships stuck in the Straits of Hormuz. This blockage will take weeks to clear, hitting supply chains around the globe. Damage to energy infrastructure in the region will take months or years to repair, and oil and gas production needs time to restart. Oil and gas prices are still significantly higher than they were before the war started, raising the risk of higher inflation and weaker economic growth for countries around the world and lower earnings for companies. 

​What if Iran doesn’t play along?

​The old saying goes, ‘in war, the enemy gets a vote.’ Unlike many countries last year after Liberation Day, Iran may not look to strike a deal too quickly. The US and Israel attacked Iran while negotiations were still ongoing, and it may not trust its adversaries to deal in good faith. Tehran might also ask for a deal that is incompatible with US and Israeli interests, leading to a failure of negotiations.

​The Straits of Hormuz remain closed to much of the world’s shipping. But Iran can still sell oil to key partners. It knows the US has little appetite for oil prices that stay high for an extended period. The mid-term elections loom, and Trump’s Republican party knows that higher gasoline prices are anathema to US consumers and will make it much harder to hold key seats.

​Market reaction remains muted

​While stock markets rebounded on Trump’s post, and oil prices fell, it is notable that we haven’t seen much follow-through yet. Unlike in April last year, when risk appetite returned and stocks didn’t so much as pause for weeks, the rally has already run out of immediate momentum.

​It is true that stocks have stopped going down and oil has stopped going up, at least for now. But with US Marines due to arrive on Friday markets are on high alert for a repeat of the start of the war, with fresh military action leading to more escalation.

​Talks have yet to begin, and could drag on for weeks. While Trump’s post said there would be a pause on plans to hit power plants until Friday, other attacks have continued, including on energy infrastructure.

​President Trump might be looking for an end to the war, but he hasn’t achieved it yet, and it is not clear that he will. Investors should remain cautious, and continue to be aware of heightened volatility and the need for good risk management.